Jones: How about other markets? Oil or currency, for example - there's never a dull moment in those. Is it an easy transition from investing in shares to spread betting in the wider markets?
Tom Hougaard, City Index: People need to make sure they understand what they are going into. With the share market, if you choose stock like Vodafone and are trading at £10 a point you're probably not going to have any nasty surprises. If you are trading the oil market, you might find yourself on the right or the wrong side by a significant amount.
Whenever you go into spread betting, it does help if you have a pretty good idea of how the markets move, especially if you start trading the more volatile instruments like currencies or commodities. There was a Friday half a year ago when gold dropped $16. In spread betting terms that's a 1600-point movement and very significant.
Patrick Latchford, Finspreads: A lot of our clients enjoy trading the indices, the FTSE and the Dow. Clearly many also trade shares, but increasingly where you see the more volatile markets - such as currencies and the commodities - people are getting into the game. But if we can take the analogy of going to university and studying for maths, the last thing you'd do at the end of a three year course is take your exams in biology, because you're going to fail. It's very important to be comfortable in what you're trading and to educate yourself. Allow the spread betting firm to help you - don't just jump into a market you think you're going to be able to take advantage of. It's always better to take these things slowly, bet small amounts in the first instance and feel your way in.
It's very important to be comfortable in what you're trading and to educate yourself.  |
Jones: A big thing that spread betting does for individuals is allow them to decide their own levels of risk. Ten years ago if you wanted to be involved in the currency markets the easiest way in was through currency futures but the minimum movement was $10 a point. With a spread better you can wind that risk down to a dollar a point or even lower.
Dan Moczulski, IG Index: When you're new to spread betting, stick with what you know. If you've spent the last 50 years following the FTSE, stick with the FTSE.
Jones: If I fancy the idea of putting a small amount of money into an account and starting to learn about spread betting, and all I've done for the last couple of years is bought and sold shares through my stockbroker, what do I need to show you to get an account? Do I need to prove I'm massively experienced?
Geoff Langham, CMC Markets, CMC Group: A key difference with spread betting is that you're classified as a private customer and as such do not need to show that you have previous trading experience. You do, however, need to show that you have an appreciation of the risks involved. The rest of the process is very simple and quick - prove your identity and address, sign a terms of business contract, fund the account and off you go.
Dan Moczulski, IG Index: We can, and I think several firms are the same, set up the whole thing over the internet in a few minutes.
Patrick Latchford, Finspreads: If you want to have a go, you can go on-line with Finspreads.com, open up an account in 10 minutes, put £100 in your account and start trading fairly quickly.
Jones: What measures to do you have in place to protect people from themselves?
Dan Moczulski, IG Index: First, we won't open accounts for people who are unsuitable - a typical student, say, whose income is his or her grant. Secondly, when they've got an account, they all have limits attached that we allocate through the risk profile and the circumstances of the client, so they don't make any mistakes that would potentially lose them far more than they anticipated. We even have what we call a limited risk deposit account where you can't lose any more money than you've specified you are willing to risk.
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Tom Hougaard, City Index: We do consider every single applicant, whether we find them suitable or not.
Ian Jenkins, Cantor Index: There's a financial constraint as well. The last thing we need to be doing is chasing a load of people for a £1,200 or £3,000 or £800 debt. If you put due diligence in at the start you can prevent much of that.
Jones: The last few years has seen an explosion in spread betting. Do you think it could spell the end of traditional share trading? And is the stock market feeling the pinch?
Geoff Langham, CMC Markets, CMC Group: No, I don't think this is the end of traditional share trading. Some people will always prefer to deal in a way that they've been accustomed to over the years. People also gain benefit if their view on the stock is long-term.
What I do think it means is the large institutions losing business to companies such as ourselves, more at the retail end of the business, because the advantages we offer are superior to the traditional share trading house. Over time people will become more comfortable with the idea.
Patrick Latchford, Finspreads: Regarding short-term trading, the question should be, 'will it be or should it be the death knell of traditional stockbrokers?' The answer is yes, it should. But this probably won't happen. Some people will be comfortable with the brokers they've been using for years, and it will take a long time to persuade everyone of the benefits of short term trading through spread betting or CFDs. So it won't be the death knell but it should be - because it's by far and away the most efficient and economic way to trade shares, for example, in the short term.
Ian Jenkins, Cantor Index: Stockbrokers have a different relationship with their clients in as much as many of them are allowed to advise, while we are all 'execution only'. If for no other reason, it means spread betting does not spell the death knell of stock brokers.
Jones: If you're using an execution-only broker and you're buying and selling with a few weeks' or a couple of months' window....
Ian Jenkins, Cantor Index: Then you'd be mad to use a stockbroker.
Jones: We've seen more companies move into this market and the structure of bets change. What changes do you think there are going to be over the next few years?
Dan Moczulski, IG Index: I don't think we'll see many more new entrants into the market. With 24-hour phone dealing, 24-hour internet dealing, mobile phone dealing, the range of binary bets and experienced dealers, any new entrant has a lot to catch up on. What I think we will see is a move towards the existing firms spreading themselves internationally and far more products that a UK client can trade on - whereas we currently offer over 7000 shares in the UK, US and Australia; in most other countries it's say the top 100 or so in each. I think this will increase if they're interested in the French or German or Asian markets.
Tom Hougaard, City Index: We already do offer all the major shares in Europe, as well as 400 shares in the US, 200 in Australia, Japanese and other Asian stocks and their indices. We have offices in China, Hong Kong, Australia and New York. So this is already happening.
Jones: What other changes do you see happening?
Tom Hougaard, City Index: I think spread betting will become more established. We'll start seeing not just retail clients doing spread betting but larger institutions, hedge funds, pension funds and, perhaps, private equity, moving into this sort of product. They'll realise it's no different to what they're doing now, except that they won't have to be incurring as much in charges.
Patrick Latchford, Finspreads: We're at the beginning of a seismic change in the investment management community. People are going to be more sophisticated, more interested in what's going on in their investments. This all points to a desire for more knowledge on more sophisticated products, and that will play into the hand of the spread betting firms who are already trying to push out those barriers and educate people on the advantages of using other products.
Ian Jenkins, Cantor Index: There's a plethora of small companies out there, and I think a lot of them may get squeezed because the big boys are going to get involved.
Tom Hougaard, City Index: Last time we had this round table discussion I said I felt it was just a question of time before the UK banks started to look at spread betting companies. Since then, two of the biggest have signed up with City Index and we're offering our services to them on the CFD side. It will only be a matter of time before their clients are saying,
'Why should I even consider trading my shares through you when my average holding period is six or eight weeks and I can do all this through spread betting tax-free?'
Brought to you in association with MoneyAm Shares Magazine